StatsGeek (29.37)

Don't Blame the Free Market for the Economic Crisis

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A lot of people who lack understanding of economics are blaming free markets for our current economic malaise. How can you blame free markets when the markets have NOT been free in this country. Some important examples:

1) The price of money, i.e. the interest rate, has been set by the Fed, not by free markets. Interest rates that were set too low for too long was THE major factor in the housing bubble. It was also a major factor in driving insane profits into the financial industry at the expense of other industries.

2) China pegging its currency to the dollar. This encouraged American companies to move operations to where the labor was cheap. Now they produce it and we consume it.

the removal of the Depression era acts that stopped these types of banking manuvers strikes me as putting whisky in front of a drunk and telling him that he has free choice but he had better stay sober--it isn't going to happen.

The markets weren't completely free at the time. As you point out, but in the last 30 years they had significantly more freedom than they did in the prior 50.
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A group of states with different agendas in Europe, trying to create a single currency when several of the states maintained a print and spend lifestyle.

A government bailout of the banks that helped do the damage.

A pile of pork called a stimulus bill that didn't create jobs.

A government sponsored robbery of pension funds and IRA"s to prop up the GM unions that caused the company to go bankrupt in the first place.

Trying to support an economy with debt over productivity.

Diverting money that could have been spent to create jobs to create a healthcare plan that nobody likes except the insurance companies.

Deficit spending our children into a bigger hole to try to get out of the next.

If you want to talk about putting whiskey in front of a drunk, you might want to look at a government that caused the problems by printing money,thinking that they can solve the problems by printing even more money.

first off, calm down. I don't necessarily support what the government has done (I think they have handled it rather poorly), my only point is more regulation would have helped avert this crisis.

As I see it the blame falls primarily on the government (1980-2004 and again in 80-present), the banking industry as a whole, and of course dear old Mr. Greenspan. Let me explain:

The governments of 1980-2004 responded to an exceptionally powerful bank lobby and systematically removed the depression era acts to limit the sector and keep this very sort of thing from happening (it worked for 50 years, I may add). Then dear old Mr. Greenspan wanted to retire on a good note and instead of allowing the market to sort out the early 2000's recession he just pumped it with money.

As the drunk would, the banks took the quick route to pleasure, even if they knew it would leave them with one helluva hangover (if you couldn't see that housing would eventually stop going up and you passed 12th grade you are a moron). This is the reason for the drunk example.

The government, I believe mainly Shrubbery Jr. (Bush), and several democrats, having slightly less economic acumen than my dog started promoting these loans because they thought, somehow, it helped the poor to wrack up debt they couldn't afford.

Then, as was pretty obvious from the start, housing fell and so did the banks. Then Bush lost whatever guts or sense he had to begin with and bailed them all out. Not in an intelligent way, like Ireland did, or Buffett was suggesting, but rather in a "blank check" fashion that did very little. Since I don't think (correct me if I am wrong) there has been a massive move in treasuries due to this I don't think this contributed much to the 08-09 crisis.

Then Obama stepped in and followed suit with something that was inteded to be FDR esque but was more corruption'esque and wound up doing nothing. Again I don't think this caused treasuries to move much so it did not contribute to the crisis.

The other government actions you posted up there are (with the exception of healthcare, that hasn't really taken effect yet) did contribute in some sense to the crisis. No argument there.

However I would say this:

If government had not been swayed by the banks' lobbying efforts to deregulate the market beginning in the 80's, we would not even be talking about this.

Like an alchaholic the banks do not seem able to control themselves (well you can choose another topic other than alchahol, but that is the more polite one) and government appears easily swayed and very corrupt. So if we have two parties that can't help but create situations that lead to this in control of the situations, I see few options better than regulation.

If I could reasonably expect that the banks would not lobby, or that congress would turn a deaf ear to that lobbying I would find it easier to see a world with few financial controls. But when you could see this past recession repeat time and time again, with every popular bubble, with bailouts every time and ever increasing debt, I am in favor of every and any possible measure that could keep this from happening again.

Daniel, sorry if you think I was yelling. I didn't bold that part to infer that. I bolded it for emphasis. I'm quite calm.

I'm not so sure that Greenspan needed to be lobbied to implement his strategy of using debt for growth, but even if he was lobbied, it demonstrates that when you give a government too much power that it can sell that power for a price. Government didn't turn a blind eye, it encouraged the problem. You really want to regulate? Try allowing bankruptcy for stupid investments. Get rid of Fannie and Freddie and make the banks sell that crap on the open market. Don't allow them to lend money that doesn't exist. Companies don't normally get too big to fail without outside help from the government.

I think that we mostly agree other than the fact that I think that government can be given all the power to regulate what it wants and it won't change a thing if that power is for sale.

I'll give you an example. If you've looked at the Fin Reg bill you'll notice a few oddities. The biggest oddity that you'll notice is that gold and silver got some special treatment compared to all other commodities in the bill. Those 2 commodities are allowed to remain hidden in the banks other assets. Do I think that JPM paid for this favor? No. They are under a mandate from the government, because it is in the government's best interest that gold and silver are manipulated. You can give the same government all the regulation power that you want it won't change anything. Is it profitable to manipulate those markets? I don't see how it could be. But they can continue to do it if they have a free flow of money from the Fed. If the Fed were audited, this would finally be exposed, but the government doesn't want the Fed audited.

If you really want to regulate the banks, don't give them any special immunity to risk. Yes there still needs to be some regulation, but you'll need to regulate congress before you can tackle the banks.

A lot of people who lack understanding of economics are blaming free markets for our current economic malaise.

LOL, as if there was one, true, theory or interpretation, of the economy, and you are the one who has it. Seriously, economics is a social science, so you better get used to conflicting theories being both seemingly correct because it ain't that black and white.

IT WAS NOT THE FREE MARKET THAT CAUSED THIS CRISIS.

By my recollection, AIG wasn't forced by the government to over-leverage their insurance liabilities to the point of insolvency. The government didn't force Lehman Brothers, Bear Sterns, Merrill Lynch and other banks to over-leverage either. It wasn't the government that forced numerous mortgage companies to make fraudulent loans to unsuspecting borrowers. Hmm, seems to me the "free market" had a very heavy role to play in the 2008 financial crisis. And I'm not saying government or the Federal Reserve didn't play a part either...

1) The price of money, i.e. the interest rate, has been set by the Fed, not by free markets. Interest rates that were set too low for too long was THE major factor in the housing bubble. It was also a major factor in driving insane profits into the financial industry at the expense of other industries.

Our currency is traded on the free market. It's called the foreign exchange market and it determines the value of currencies worldwide. If the interest rate was floated on the market, then it would fluctuate wildly, just like the 10-Year US Treasury Bond Yield's 17% move today. Nobody wants that kind of volatility.

2) China pegging its currency to the dollar. This encouraged American companies to move operations to where the labor was cheap. Now they produce it and we consume it.

What's wrong with that? Those companies get to manufacture with cheaper labor costs, Chinese workers get employment, and we Americans get to buy goods cheaper. It's a win-win for everyone, except the American worker. You are complaining that America doesn't have a free market, yet, complain about something that happens when there is a free market. Talk about contradiction....

Of course, no matter what government does, any private sector company is a free market unto itself. Free market does not mean a condition of the economy where there is a lack of regulation, subsidies, and government-imposed monopoly, but it simply means companies that are owned by shareholders.

Thus, when the Fed and the FDIC make it impossible to turn a profit using honest credit, and the banks use fractional reserves, that's the free market. Because they're banks. Get it? Banks=Free Market.

And when Fannie and Freddie guaranty mortgages, and Barney Frank and Bill Clinton force banks to lend to people with bad credit, it's the Free Market.

And when the government guaranties bailouts for companies like AIG, that's Free Market. Because it's pro-business. Pro-business=Free Market.

Government never forced businesses to make bad decisions. Except when they did. And their subsidies are all part of the Free Market system that we have without glorious Democratic Rooseveltian regulation. Because they're subsidies and not Rooseveltian regulation.

`By my recollection, AIG wasn't forced by the government to over-leverage their insurance liabilities to the point of insolvency. The government didn't force Lehman Brothers, Bear Sterns, Merrill Lynch and other banks to over-leverage either. It wasn't the government that forced numerous mortgage companies to make fraudulent loans to unsuspecting borrowers. Hmm, seems to me the "free market" had a very heavy role to play in the 2008 financial crisis. And I'm not saying government or the Federal Reserve didn't play a part either...

After reading this, did anybody else get the idea that Beta has no idea what a free market is? If the Fed and goverrnment played a part, by definition, that's a mixed economy and not a free market. A free market is, again by definition, one where the Fed and government don't play a part.

It takes a tremendous amount of cognitive dissonance to be a Fed apologist.

Can someone identify a truly and completely "free market" in any modern (or even ancient) society? The dicussion seems to be largely a hypothetical one. Governments are always involved in markets--it's just a question of how. I suspect there hasn't been a free market anywhere since prior to the founding of Babylon. And I doubt anyone would want a truly and fully free market for everything if they understood the consequences. But hey--we have a lot of "free market" airlines in Africa. Care to ride on one?

After reading this, did anybody else get the idea that Beta has no idea what a free market is? It takes a tremendous amount of cognitive dissonance to be a Fed apologist.

Didn't we have a truce? If you want to attack my intellect, we can call it off right here, right now.

If the Fed and goverrnment played a part, by definition, that's a mixed economy and not a free market. A free market is, again by definition, one where the Fed and government don't play a part.

You know what I meant. Free market, as in, the "private sector". Non-government functionaries. Now, instead of playing with definitions, how about recognizing that completely private individuals (corporations included), shot themselves in the foot all by themselves, no government help needed in that endeavor. If anything exhibits cognitive dissonance, it's those who blame the government for everything.

Of course, no matter what government does, any private sector company is a free market unto itself. Free market does not mean a condition of the economy where there is a lack of regulation, subsidies, and government-imposed monopoly, but it simply means companies that are owned by shareholders.

So if an economy has a private sector, there is a free market?

Thus, when the Fed and the FDIC make it impossible to turn a profit using honest credit, and the banks use fractional reserves, that's the free market. Because they're banks. Get it? Banks=Free Market.

You lost me here. I'm so stunned by some of the comments posted here that I don't even know where to start. A few short comments won't do any good so I think I'll write a new blog in the next few days.

What are you... threatening me now? I merely stated that I would try to be respectful in our future interactions. I don't think I crossed any line with my comment.

StatsGeek started this blog. He defines the terms, not you. That's how debate works. I infer that StatsGeek defines "free market" the same way I do - as a separation of government and the economy, a market charactized by voluntary exchange based on property rights without a coercive third party (i.e. government). If they are not separated, it's not a free market. It can move in degrees towards or away from voluntary exchange, but if the government is involved, it's a mixed economy.

Certainly if the government directs interest rates, impacting the allocation of capital, it's a mixed economy.

no government help needed in that endeavor.

Are you about to make the outrageous claim that the government played no role in the financial crisis? Not even the most hard core Socailst or Keynesian economist would claim that. You should definitely stop now.

David in Qatar. I have had family members who have lived in Africa for years and flown the airlines. And many of them have no real government regulation. Hence they are not safe.

True "separation of government from the economy" (your definition of a "free market" corect?) means separation of laws from the economy because only government can enforce law. (Any entity that enforces law IS "government.") So, would you really want to be involved in a lawless economy? Has any society ever had one? Property rights have NO MEANING without coercion by an entity that amounts to "government" to enforce them. If you think otherwise, just consider how one enforces "property rights" in a place like Somalia. Also how do you define "voluntary" exchange? Once you are up in the airplane, how much will you "voluntarily" pay for good navigation? How much will you "voluntarily" pay for proper medical treatment when you are bleeding at the door of a hospital and have no time to get to another hospital? And what about if you are left in the hot sands outside of Doha one day without water and I come by with a canteen? How much will you "voluntarily" pay me?

With all due respect, your concepts of "free market" seem poorly defined and poorly thought out. You are missing my point and not answering my question. Where is the mythical free market you and others so fondly dream of? I still think it is only in your minds. But I await your shared knowledge to persuade me otherwise.

Yeah, the Fed forced mortgage originating/repackaging banks to write NINJA loans with their cheap money, then forced less savvy participants to buy the structured products coming out of the other side of the sausage grinder. Now, in a just world the mortgage originators would go out of business, and the banks that bought too many of those loans would be dissolved by the FDIC, wiping out the stockholders and giving the lenders a severe haircut. But because of the excesses of the unregulated derivatives market (which is as close to a free market in financial products as we have) this would have ratf**ked everything.

Point taken, this is not a 'free market' failure per se because we have a regulated economy. But by the exact same argument, it is not a failure of government intervention in the economy, because the faillure occured a more unregulated part of the economy.

Perhaps a lot of the bad feelings were a result of the bailout, where the consequences of a free market were prevented. Fair point, but you should acknowledge that _many_ people that made did not make bad choices would have been significantly hurt without a bailout.

Any conclusion that is not "humans as a whole are non-rational and frequently make self destructive choices regardless of the large scale organization of society" is wrong anyway, whatever lipstick you want to put on the pig.

I'm gonna tell you right now, you have no idea what happens in Africa. I lived in SA for almost two years. I've lived overseas for about 10, and have talked with many people from Africa. There is no free market in Africa. There are no property rights in most countries. The airlines industry is owned by a few politically connected men, sometimes by government officials themselves. Do you yourself a favor and visit the Heritage Foundation's Index of Economic Freedom. Tool around there and do some research on African countries. They are the least economically free in the world.

For what it's worth, I put the term "free market" in quotes in my response precisely because of the reasons that tomlongrpv listed in response #16. By the definition of some, I don't believe that such a beast _can_ exist, and therefore any statement about it is unfalsifiable. It's like asserting unicorns are immune to herpes.

StatsGeek started this blog. He defines the terms, not you. That's how debate works. I infer that StatsGeek defines "free market" the same way I do - as a separation of government and the economy, a market charactized by voluntary exchange based on property rights without a coercive third party (i.e. government). If they are not separated, it's not a free market. It can move in degrees towards or away from voluntary exchange, but if the government is involved, it's a mixed economy.

That's fine, but you knew, or, now know what I meant.

Are you about to make the outrageous claim that the government played no role in the financial crisis? Not even the most hard core Socailst or Keynesian economist would claim that. You should definitely stop now.

AIG made the decision to insure $500 billion worth of CDO's all by themselves. There wasn't a government official in the boardroom directing AIG to make such a stupid decision. I know you read my statement, "And I'm not saying government or the Federal Reserve didn't play a part either..." Obviously, they did play a role. What I am arguing here is, the private sector also made stupid decisions, for which, they deserve all the blame. I recognize 1% interest rate in 2002 might not have been good. I recognize government de-regulation allowed financial institutions to over-leverage. Not to mention the mandates given to Fannie and Freddie that forced them to reduce lending standards. I recognize all that. But the free market, i.e. private sector participants, aren't innocent in the least bit either. AIG didn't HAVE insure CDOs, but they did. How you can blame government for that, I have no clue...

Have you ever heard of the Greenspan Put? How about Long Term Capital Management? If you do know about them, then why would you write what you just did? Again, cognitive dissonance.

AIG should have gone bankrupt and died. They only people that wanted to bail them out were the same people that told them that CDO's wre just fine... the Federal Reserve board, Goldman Sachs, and really bad economists - none of whom are Austrian School or other free market supporters.

David in Qatar. Of course there is no free market in Africa. I didn't say there was. There is no free market anywhere that I know of that meets your definition except perhaps in Somalia--and likely not even there because there are some organizations that operate like government and enforce rules that may resemble law. I don't think there ever has been a totally free market in history that meets your definition.

But sometimes there are free markets for particular goods. So that is what I meant by African airlines (not African nations as a whole except perhaps for Somalia) being "free markets." Some (notably not SAA) enjoy "separation between the market and government" that you define as free market because there is no effective regulation of them. So some airlines in Africa are examples of the "free market" you treasure. And with the exception of SAA and perhaps Ethiopian their service, performance and safety records leave a lot to be desired. One reason cited for the poor safety records is "lack of government oversight." See http://www.msnbc.msn.com/id/18555318/ This suggests that some airlines do enjoy "separation" from government.

Again, share your wisdom with all of us and answer my questions if you can. How much will you pay for water if you run out in the hot sands outside Doha? Etc.? As you suggest I am surely hopelessly ignorant. But then what are you if you cannot answer the questions of a fool?

You mean the real world with free market African airlines? That world? I don't live in that world, you're right.

We can have a discussion about free markets if you'd like, but you came on here running your mouth about free market African airlines and made a total arse of yourself. Now that your ignorance has been exposed, you have the gall to characterize my view as "believing in unicorns."

Give me a reason to believe that I won't be wasting my time with someone that is love with their own ignorance and I'll proceed.

No I didn't do what you said. The point about African airlines was a side point to the main question I posed which you continue to ignore. I see Beta has the same problem with you. Re-read what I said. I asked a very simple question. Where in the world (anywhere at any time) has there ever been a "free market" economy that meets your definition of "separating" the economy from government?

You cannot answer the question because the answer is that there is no such "free market" and saying so would be destructive to your "faith." (I say "faith" because we are talking about beliefs not based on fact.)

In every country in history that has had property rights, several industries were left alone, and prospered. The government eventually took over those too. That's the way it always plays out. See the Internet 1992-2010.

If I can show you one industry, a major industry, that was free.... and show how that industry was taken over and cartelized by the government and businessmen afraid of competition. and then show you industry after industry where that happened...

Would you pay attention or would you continue to throw insults?

And after I list over and over again, industry after industry, corrupted and taken over by government...

then I will show you how governments came into being... one after another.. all over the world...

and then I explain to you the only characteristic that every government has in common is a comparative advantage in violence in a given geographical area...

Would you care to know about it? Or would you rather live in the "real world with free market African airlines and a benevolent government that cares about you and protects you from the evil market."

David in Qatar. What insults did I throw other than responding to yours? Read the thread above including your first comment.

You still are not following your own logic very well. "Property rights" means "law." "Law" can only be enforced by something called "government." "Law" inherently requires violence or the threat of violence to enforce it. You have exclusive use of your apartment or car or whatever only because even the basest members of society respect your "property rights." They do so only because of the consequences if they don't respect your rights. Without government your "property rights" are just pieces of paper--empty promises. Thus the minute you talk about "property rights"" you are no longer talking about a "free market" because you have government involved in the transactions to uphold their validity. Where do you go when someone renegs on a promise to you? To court to get a ruling. How do you enforce the ruling of the court? Through government action. Your "free market" idealistically assumes that you can totally "separate" government from the martket and that the result will be something other than chaos.

So let's hear your answer. You say a lot about how you can provide an answer but you never do it.

If your only response is to call me inconsistent by throwing out the 'cognitive dissonance' definition, then we can end this discussion right now. I am not an absolutist like you. Pragmaticism stipulates that most companies should be allowed to fail, but something called, "too big to fail" dictates a company like AIG can hold an entire economy hostage to such a degree as to justify bailing it out. There is a difference between that and sticking to a narrow ideological viewpoint no matter what.

Saw a news video on a tourist town somewhere in spain the place was a ghost town When the usa stock markets crashed in 2008 until march 2009 the rest of the world slowly deteriorated and now I believe the real crash is upon us for real this time a complete global crash,once we go the rest of the downtrodden debt markets are going to crash. even gold will lose value in this event which I feel is brewing. I don't believe the wall street mumbo jumbo they say like oh a correction blah blah blah,the whole world economy is interlinked and at no time in history do I believe the world markets are as vulnerable as they are right now today this minute. we are getting our wakkeup call from our bad dream real soon.

I would also like to know from whereaminow, a case in which, a country, kingdom, or society, any time in history, fit the definition of a free market as laid out by david in qatar. Not even Hong Kong fits that definition. The absolutism of a narrow ideological point of view, i.e. free market defined as an economy where the Fed and government don't play a part, flies in the face of the pragmatism with which policy makers, for the most part, have fortunately adhered to since the Bush Administration abandoned its own absolute ideological stances in the face of the reality of a total collapse of the economy.

If you wish to change the discussion for whatever reason (is it because you knew what I was going to show you would be difficult) that is fine.

"Property rights" means "law." "Law" can only be enforced by something called "government." "Law" inherently requires violence or the threat of violence to enforce it.

I'm curious as to where you learned this? Your statement violates common sense and thousands of years of human interaction and thought. Property rights does not mean law. Laws can be enforced by any agency agreed upon by two parties to a transaction. Governments have a monopoly on legal affairs. Comcast has a monopoly on delivering cable service in certain parts of the country. It is not inherently required that Comcast devilers cable to those unfortunate customers, just as it is not inherent that there be only one agency - the government - that delivers laws.

beta,

AIG did not hold me hostage and the bailout was not justified. I would have been fine without them and you (and the government) had no right to steal my money and use it bail them out. Ideologically I am very narrow when it comes to people stealing from me. I suspect you would be too, if you had any money,

It doesn't have anything to do with an ideological viewpoint. "Too big to fail" has no meaning. Did you know that in the 72 year history of the Soviet Union, not a single firm folded? I guess they were all too big to fail!!!

Great point. If there was a free market there would be responsibility for the idiots out there making dumb loans. Instead those idiots are bailed out and given even more power. It is insane.

We don't have a real economy anymore, it is a puppet economy and it's really disturbing. We have got to get back to free market ideals by throwing out the politicians who are taking Wall Street's money.

AIG did not hold me hostage and the bailout was not justified. I would have been fine without them and you (and the government) had no right to steal my money and use it bail them out. Ideologically I am very narrow when it comes to people stealing from me. I suspect you would be too, if you had any money.It doesn't have anything to do with an ideological viewpoint. "Too big to fail" has no meaning.

In all honestly, that's like saying, 2+2 = 5. If the collapse of Lehman Brothers and the subsequent freeze in credit markets teaches you anything, it's that 'too big to fail' does have meaning, and that example would only be just a taste of what would have happened had AIG folded. The 'domino effect' should ring a bell.

Did you know that in the 72 year history of the Soviet Union, not a single firm folded? I guess they were all too big to fail!!!

What does that have to do with anything in this discussion?

Oh yeah, GWB was an ideological torch bearer of the free market. ROFL!!!!

Free-trade, deregulation, tax cuts, etc. were the hallmarks of his administration. I would have thought that is common knowledge, but apparently, it isn't.

"The economic policy of the George W. Bush administration was characterized by a combination of tax cuts, expenditures for fighting two wars, and a free-market ideology intended to de-emphasize the role of government in the private sector. "

I take it you have no legal training. Alternate third parties that parties to a transaction agree can decide issues for them in turn must have some way of enforcing their rulings. If they have the ability to enforce those rulings themselves then they are "government." And you can have multiple governments in one society and people can pick and choose (or perhaps be denied any government). See the history of colonial "condominium" government in the New Hebrides, now known as Vanuatu. http://en.wikipedia.org/wiki/History_of_Vanuatu . In a way this may be evolving on a clan basis in Somalia and perhaps in Iraq and Afghanistan as well. Maybe we should try it for Northern Ireland. As you say there can be more than one government in a society. By definition that is the situation during a civil war. I submit to you that multiple governments in a single society has not been, historically, a successful method of providing peace and prosperity.

Also, "property rights" are, again by definition, "law." Hence one studies "Property" and "Contracts" as a first year law student, at least in the U.S. and I suspect elsewhere as well. The manner in which these rights are enforced, whether through courts or alternative dispute resolution, ultimately comes down to violence or threats of violence for disobedience of the rulings. Whoever makes those threats of violence to enforce a legal ruling is a government. And if more than one entity enforces such rulings then you have a multiple government society (and likely a civil war or a rebellion as well).

In your "free market" you post a price for your goods. But it is only government that prevents your customers from simply taking the goods from you for free. Thus in all economies I am aware of the government is not "separated" from the economy to any significant degree. It is just a question of how it is intertwined.

For these reasons you cannot answer the question of where and when in the world a free market by your definition has ever existed.

By the way, no one stole your money to rescue AIG. New money was created. (Were this not the case your taxes would have increased or other spending would have been cut---neither of those things happened). And depending on how things play out we might even make a profit on it.

I am no fan of AIG and have spent a good chunk of time representing clients suing them for non-payment under their policies. But you are naive to think that their failure would have had no effect on you.

There are other ways to impose responsibility on market players that don't involve putting us all into the stone age. Recall that at the outset of the Great Depression 28 states in the U.S. had not even one bank. I don't think anyone wants to achieve "free market" status with a barter economy. As Beta has pointed out above, even our former president George W. Bush (a man with, to use George McGovern's words "profoundly limited wisdom") understood the need to preserve some sort of market exchange.

And if more than one entity enforces such rulings then you have a multiple government society (and likely a civil war or a rebellion as well).

More than one government in a society is a Civil War? So America was at Civil War from 1776-2010? How about under the Articles of Confederation, when there was no authority for the central government? Was that a Civil War too? When the Kentucky and Virgina Resolves were passed 1798 nullifying Federal Law, was that an act of war? How about when Mass. did the same thing in 1812? Or when Wisconsin nullified the Fugitive Slave Law? Did Wisconsin start a civil war when that happened?

In your "free market" you post a price for your goods.

So far so good.

But it is only government that prevents your customers from simply taking the goods from you for free.

Uh, no. A gun, security, etc. keeps customers from taking the goods for free. The government, by definition (since you like that), is retribution, not preventation.

Thus in all economies I am aware of the government is not "separated" from the economy to any significant degree.

Yes, all major economies today are mixed economies. I never claimed otherwise.

By the way, no one stole your money to rescue AIG. New money was created. (Were this not the case your taxes would have increased or other spending would have been cut---neither of those things happened). And depending on how things play out we might even make a profit on it.

Economics is definitely not your strong suit. I know of no economist (Keynesian/Socialist/Free Market) that claims that bailing out AIG didn't cost me anything because "new money was created." Where did the new money come from?

We will most DEFINITELY not make a profit LOL. Who is "we" anyway?

I am no fan of AIG and have spent a good chunk of time representing clients suing them for non-payment under their policies. But you are naive to think that their failure would have had no effect on you.

It would have had no effect on me. Describe the effect exactly that you believe it would have had no me.

You jump to conclusions too quickly. Different levels of government are not different governments.

Perhaps AIG's collapse would have had no effect on you. Assuming you do not neet insurance for your business and that none of your customers or clients do either then it would have had no effect on you.

The new money was literally printed. Where do you think money comes from now that we are not on a gold standard? Bernanke made this clear in an interview on 60 Minutes. Ultimately if we keep the increased money supply we will suffer inflation and that will be the cost for all of us. But it is too soon to tell what that cost will be or even whether there will be one.

The government has made some profits on some of the corporate bailouts. AIG may be one of them. The overall situation, including bank failures, will, of course be at a loss but not as large as people assume. Indeed it is hard at this stage to meaningfully predict what the loss will be. When Chrysler was bailed out the first time everyone assumed there would be a loss. There wasn't.

When you and your customers in your "free market" start shooting at each other to negotiate prices (you use your gun to prevent them from taking all your goods for free and they use theirs to prevent you from taking all their money without giving any goods in return) you are essentially describing anarchy. A truly free market is anarchy. Andf all libertarians are essentially anarchists. They just have a more trendy word for their faith nowadays.

Anyway--good debating the issue with you and I am pleased we seem to now be in agreement that the "free market" as you define it has never existed anywhere in human history that either of us can identify. Our time is better spent dicussing how government should be involved in the market, not whether it should be. Assuming that markets are always better the more "free" they are (whatever that means) is just an assumption--a faith--and does not help answer the question of what we should do and why.

Well, if Bernanke says everything is going to be OK, phew, I guess I can sleep at night. I mean, hey, if he can centrally plan the interest rate and money supply so well, I don't see why we don't put him in charge of steel production, the food supply, and every other part of our economy. Oh wait, that's because Bernanke has never been right about anything concerning the economy and central planning doesn't work.

Now, I asked you where the new money comes from. You said very clearly that it will come out of my pocket later on. Yet, even though I didn't voluntarily give away my future money, this is somehow not stealing to you.... Ok, with you, we need to start with the very basics of scarcity, supply and demand, the nature of money, and capital structure. I doubt we have time for that. You stuck your head into one econ class in college, slept through the whole thing, never asked a single question, and you just assume the Fed chief is right, cuz, well.. he's in charge, and the guy in charge must be right.

Trillions of dollars have been exchanged via the Internet in the last 15 or so years in an environment with little to no defined jursdiction, legislation, regulation, or taxation..... while you use that same medium to tell me that the free market can't exist. America went from a starving third world country in 1776 to the wealthiest nation on Earth in 1913 with no taxation, almost no regulation, several completely free industries, and market controlled money (for all but 20 years) .... while you sit in America and tell me in Qatar that the free market can't possibly exist.

I'm disappointed to see you go. I finally got you to understand that the free market had absolutely nothing to do with the crisis. As you say, our current housing, banking, and insurance system is not a free market. Still, I'm confused as to why you blame a non-existent entity for the current crisis. And I'm curious as to why you didn't support George Bush when he so greatly expanded government.

And of course, don't forget a parting shot at libertarianism, a concept you were only introduced to in the last year and have almost zero knowledge of. But that's not going to stop you from deciding that they're all anarchists, another term you probably have no understanding of.

Even if it was the "best" of its time, 1913 America was not some sort of paradise. It's too bad there isn't time travel. That would help dispel your misconception quickly. If we don't understand history, we will repeat the mistakes of the past over and over again. Your idea of a "free market" is to make sure the foxes are in charge of the chicken coop. Good for a few, but bad for society as a whole.

Created money does not necessarily "come out of your pocket." Any monetary supply that causes inflation (a function of the supply of money growing faster than the economy) has that effect. That can occur with gold, silver or any other standard you choose to use. Yet I am sure you would not accuse a gold miner of taking wealth out of your pocket with an unusual discovery that increases the money supply faster than economic growth.

Crisis is what a free market is. The lesson we should learn is that unregulated markets are chaos. The more one strives for totally "free" markets the more one is striving for chaos. Just like you and your customers in your "free market" negotiating prices with one another at the point of a gun--your suggestion, not mine.

George Bush may seem a traitor to the faithful libertarian anarchists, but he did a lot to weaken government regulation and bring forth chaos. George Bush also perpetrated more ignorant and wasteful American aggresion on the rest of the world. Where are the WMDs? Perhaps he is still looking. We cannot afford to interfere in the civil wars of other nations. We should have learned that some time ago.

I am guessing you think the internet might be your "free market." But again you are just dreaming. The internet is nothing but a bunch of 1s an 0s--a bunch of on and off switches. As and when people disobey any agreed upon conventions it is only government regulation that provides any relief. If there are any markets anywhere that are COMPLETELY free of regulation and taxation then I suspect they are in chaos.

Remember, government is the tool by which the consensus of the majority holds the most bestial of us to some minimal standards. There is no other way to do it. A completely free market is simply a jungle, as Upton Sinclair would no doubt reaffirm.

And by the way, I never slept through class in college (as long ago as that was). I was wide awake, took notes and ALWAYS disagreed with my professors--whether they be right wing nut jobs or commie pinko marxists or bland pablum moderates. Agreement is very uninteresting, unchallenging and unfulfilling. Disagreement is far more enjoyable. I am sure I am in a minority in my views in this regard, but I suspect you are part of my minority. Good for you. You are listening to other voices. Doing so (in the words of one of my political opponents) "stretches" your mind. You are obviously working to do that. So am I, so thank you for helping me do so. You may well be one of my favorite "wingnuts." And perhaps I can aspire to be a good blockhead in your view.

I'm not going to comment on anything else you write. I just want to focus on George Bush. GWB was never my President. Just like Obama, Bush was a warmongering, statist piece of garbage. He should be in jail. I don't believe in Hell, but just like all the other statist, warmingering cowards, I hope he burns in it for eternity.

The fact that you even think to associate neoconservatives with Libertarians shows how ignorant you are of the range of the political spectrum of thought, the philosophy of liberty, the principles of aggression / non-aggression, voluntary exchange versus involuntary servitude, well.. i'll stop there.

There is no group of people that, outside of perhaps Marxists, loathes libertarians more than neocons.

Perhaps that's the key. If you took some time to find out why neoconservatives despise us, maybe that would shed some light on your beliefs. You might find out that you're more like George Bush and the neocons than you ever would have imagined.

America went from a starving third world country in 1776 to the wealthiest nation on Earth in 1913 with no taxation, almost no regulation, several completely free industries, and market controlled money (for all but 20 years)

I have to disagree with you on a matter of detail here. The national government collected taxes from the states in proportion to their population, and levied tariffs, which are essentially a form of taxation. However, if you are making the point that America's experience adds to the mountain of evidence that the growth of a country's economic prosperity is inversely proportional to the influence of that country's government on the lives of its citizens and the operation of its businesses, then I agree completely.

Created money does not necessarily "come out of your pocket." Any monetary supply that causes inflation (a function of the supply of money growing faster than the economy) has that effect. That can occur with gold, silver or any other standard you choose to use. Yet I am sure you would not accuse a gold miner of taking wealth out of your pocket with an unusual discovery that increases the money supply faster than economic growth.

That's not how a gold standard works, or natural money, or free market money. Exploring, mining, and producing gold has a cost - and a steep one. Counterfieting money is cheap, practically with no cost in the digital age. In a market economy with paper certificates based on gold, the chosen money by participants, the cost of bringing money to the market determines how much will be produced. Note that the market determines the amount of money produced.

In an unbacked free-floating exchange, aka the great race to the bottom, the amount of money is determined by central planners, Soviet-style technocrats, that print money in an attempt to stimulate their economies in a purposefully moderate inflationary environment. In other words, the cart leads the horse. And just like all other efforts at central planning, it fails.

I just have to ask are you either 1) fresh out of law school or 2) a government lawyer? I figure it has to be one or the other, as it seems you have specialized knowledge of US law with a complete ignorance of every other aspect of our world. Usually that is the course with newly grads and civil servants. Not meant to be offensive, just my intuition.

StatsGeek - I thought I made myself clear: obviously business=Free Market. Any time the government regulates a private business, subsidizes a private business, or insures a private business, that's Free Market. Free Market is all, and is in all. Come to think of it, since Free Market is omnipresent, I'm starting to see why libertarians seem to worship it. Definitely some aspects of deity there.

Where - I hate to be picky, but despite their ignorance, the "Others" here seem to pick up on things like that to use to defend their ignorance. It's like trying to teach someone how to drive a car while they're arguing with you about the maintenance requirements listed in the owner's manual.

Where - I hate to be picky, but despite their ignorance, the "Others" here seem to pick up on things like that to use to defend their ignorance. It's like trying to teach someone how to drive a car while they're arguing with you about the maintenance requirements listed in the owner's manual.

Again, you're right. I guess I'm struggling to explain freedom to people that have no conception of what freedom is. I don't even know where to start when a person thinks that GWB was a libertarian, that antitrust is there to protect the little guy, that central banking systems magically manange the money supply out of market necessity, that Obama is not a warmongering continuation of necon policies, that a free market they don't believe exists is the source of our problems, that....

Well, as you can see..... perhaps I should try addressing one issue at a time.

Of course I am aware that neocons like Bush dislike and differ substantially from libertarians like yourself. I don't associate you with one another except in the impact you have. Both of you are just serving the will of big business, knowingly or not, by opposing meaningful regulation of businesses. I just happen to disagree with you both. Your concepts of freedom are essentially the same: the freedom of the fox to plunder the chicken coop. You just use different logic to get there.

Most interesting of all is your proposition (as stated by one of your fellow libertarians) that "America's experience adds to the mountain of evidence that the growth of a country's economic prosperity is inversely proportional to the influence of that country's government on the lives of its citizens and the operation of its businesses..." I suspect this is true for the high-living elites in countries with weak governments but the reality is exactly the opposite. Life expectancies and standards of living for the vast majority of the population are best in the oft-derided "nanny states" of Northern Europe. Again it is an uncomfortable reality for libertarians to deal with since it does not fit their faith.

As to money, you need to think harder about what you advocate. I don't think even many libertarians would agree with you. A "natural" money supply is not necessarily gold or silver. It could be copper, stone, paper--whatever is chosen. While mining may have costs, that is really beside the point. The issue with your "natural" money is that the supply is determined by the fortuity of the item chosen (usually a metal that is at least somewhat available in the society) and the fortuity of what the varying supply of that item happens to be. Your assumption that choosing such a "natural" money will somehow be better than what we have now is just that--an assumption for which you cite no facts and no experience.

I am neither fresh out of law school nor a government lawyer (although as an unpaid hobby I am a local elected official). Of course my opinions are shaped by my experience as yours are by your own. And since my experience, in turn, is confined to my particular location (LA--a little speck in the world) where I have been for a quarter of a century (a very small moment in time), my experience and knowledge is very limited. But unlike many others in these blogs I think I am at least aware of my own limitations and therefore do not pretend to be the voice of "freedom." Thank you for offering me your description of "freedom." You'll have to excuse me but I think I prefer something different. I don't worship your libertarian free market gods and I don't hallucinate and see unicorns when doing so, but if such religion brings you happiness then enjoy.

Your concepts of freedom are essentially the same: the freedom of the fox to plunder the chicken coop. You just use different logic to get there.

Nope

Life expectancies and standards of living for the vast majority of the population are best in the oft-derided "nanny states" of Northern Europe. Again it is an uncomfortable reality for libertarians to deal with since it does not fit their faith.

Nope

As to money, you need to think harder about what you advocate. I don't think even many libertarians would agree with you.

Nope, up next comes the part where you struggle to define natural money, completely unaware of what it is.

The issue with your "natural" money is that the supply is determined by the fortuity of the item chosen (usually a metal that is at least somewhat available in the society) and the fortuity of what the varying supply of that item happens to be.

Nope

But unlike many others in these blogs I think I am at least aware of my own limitations

Just to add, since there may be readers here that do not understand "natural money" but actually want to learn.

The supply of natural money is determined by the market through the demand to hold or spend money. It's called natural money because it came about naturally through market forces, without the behest of government. Money was around before govenrments and operated fine. Governments entered the minting business for one purpose. Debasing monopoly currency, backed up by the force of a gun is profitable. Anyone who claims that this is not the reason government's abolished natural money has never studied the history of money.

I'm not sure what you mean by fortuity (chance occurrence?), but natural money was selected for durability, divisibility, and fungibility.

The supply is not determined by the chance amount available - but again I don't know what you mean by "the fortuity of the varying supply." Fortuity means chance occurence. The supply of a good is not a chance occuremce. It's a mixture of land, labor, and technology. Just as you wouldn't say the supply of cars is determined by the off change that cars are available. It's a nonsensical statement.

If the market for a money can not be supplied by the existing resources, the demand drops until the market completely rejects the money as useless and a better money is found. The market will reject unbacked government paper as well, and has done so many times in the past, and will continue to do so. Every unbacked paper currency ends up at zero. Every one.

For a thorough, anti-positivist understanding of the nature of money, I recommend, as I usually do, Jorg Hulsmann's Ethics of Money Production, available free from Hulsmann if you do a quick Google search. It also includes an excellent history of money.

Re-reading your points, you need to study history on money supply a little more. I recommend the British Museum and the Bank of England Museum to help you out.

Fortuity, as you suspected, means chance. Unlike the supply of cars, which is governed by demand and production, the supply of gold is much more based on fortuity. You can open a car plant anywhere, buy the goods you need, invest the money, and increase the supply of cars. Gold, on the other hand, requires discovery. Its supply is finite and the locations you can mine are specific. Even if you invest more money you may not be able to increase the supply. And even if you increase the supply you may not be able to do so in a way that keeps pace with economic growth. Choosing gold as a money runs a substantial risk of deflation. The late 19th century experience in American shows this to be the case--recall the "free silver" movement and William Jennings Bryan's "Cross of Gold" speech ("you shall not crucify mankind upon a cross of gold.")

An your thought that governments always "debase" coinage again misses the point. It again assumes that "pure" metal coinage is somehow best for the economy. And it also assumes that non-governmental minters didn't debase coinage (a rather naive assumption).

Yep, when I'm arguing with people that are so arrogant as to think they "know" what other people think, then a simple one word answer is enough.

As for other people, who think they know they history of money.... like... um... YOU!... perhaps a google search would help you. I mean, cmon, this post was dead, and then you had to comment. I would have thought you were smart if you had just not typed anything, but then you have to go and...

Wow the arrogance of youth is a powerful thing. Enjoy your gold. If and when it does become the money in a post fiat money world I suspect you will be stuck with lumps of fool's gold. Good luck to you--you will need it.